Blockchains Are Learning How to Scale, But At What Price?

56,000: the number of transactions the Visa payment platform can process in a single second. By contrast, the Bitcoin blockchain processes anything from three to six transactions in the same amount of time, while Ethereum can now process only a slightly less unimpressive 15.

This comparison is hardly flattering for both blockchains, and it underlines the challenges they and other distributed ledgers face if their designers ever wish to scale them to the point where they're used by much of the globe.

Fortunately, recent months have witnessed growing indications that crypto's scaling problem may one day be a thing of the past. From Bitcoin and Ethereum to Microsoft and the Bank of China, developers are devising scaling solutions for the world's blockchains. The question is, even if they enable a vast spike in transactions per second, will they still preserve the qualities – decentralisation and security – that made the blockchain so radical in the first place?

Sharding

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Perhaps the most fashionable technical solution to scalability right now is sharding, which Ethereum (among others) is working on in the hopes of achieving somewhere in the region of 10,000+ transactions per second.

In contrast to the Ethereum blockchain as it operates now, sharding divides the blockchain's nodes into smaller groups, known as 'shards.' Rather than validating the same transactions at the same time, different shards then validate different sets of transactions, thereby increasing the number of transactions that can be processed per second.

As Ethereum developer Raul Jordan outlined in a January blog post, once each shard validates and collates its own set of transactions, these would then be recombined back into the overall Ethereum blockchain. "Then," he explains, "we would have supernodes that would take the collations across all shards and put them in a single block to be added to the Ethereum blockchain."

Something similar to sharding – albeit quite distinct – is what Corda offers. Built by New York-based company/consortium R3, it's a distributed ledger that permits transactions to occur in parallel with each other.

As explained to Cryptonews.com by Roger Willis, the Associate Director at R3, "Corda does not broadcast all transactions to all network participants nor does it even broadcast all transactions to pre-defined “channels” or “subgroups.”"

This distinguishes it from both sharding and from layer-2 protocols, since there are no fixed groups or 'shards' as such handling a fixed set of transactions. The number of participants or nodes involved in verifying a transaction can be scaled down or up at will, while verified transactions don't have to be added to the entire ledger afterwards.

"In Corda data is shared on a need-to-know basis," Willis clarifies. "So no unnecessary intermediaries are aware of the discussion even taking place. This means that each transaction is shared only with the minimal set of participants needed to process, verify, evaluate or notarise that transaction."

Layer-2

Sharding isn't the only technique being turned to by blockchain developers. The other major method involves the use of layer-2 protocols, something which Microsoft, of all companies, is looking at. In February, the technology giant announced that it was pursuing blockchain-based solutions for online ID verification, and that it was also pursuing layer-2 protocols as a solution to the scaling problems inherent to blockchain tech.

While proposed Layer 2 protocols are at an early stage and haven't been outlined in detail, they essentially work by sending transactions to an 'off-chain' platform. Whether such a platform is another decentralised ledger or something else entirely isn't clear at this stage, but the idea is that they'll lack the constraints that currently hobble Bitcoin and Ethereum.

Bitcoin itself has been flirting with the idea of off-chain scaling for a couple of years now, in the form of the Lightning Network that will allow transactions to happen through private channels between multiple users.

This putative network still remains at the alpha testing stage, but one other Bitcoin solution that has been rolled out is the SegWit (segregated witness) upgrade. First introduced in August 2017, it roughly doubles the previous transaction rate (per second) by removing each block's signature data. It has seen a steady rise in adoption since launching, with it now being responsible for more than 30% of bitcoin transactions.

Scaling at the cost of re-centralisation and security?

Admittedly, doubling a speed of three transactions per second is a fairly modest step, yet other breakthroughs outside of Bitcoin and Ethereum suggest that blockchains are likely to be considerably faster in the future.

One such breakthrough came from the Bank of China, which last month filed a patent for a blockchain data-compression technique that sends data off-chain and then back again after it has been compressed. Another possible solution was unveiled in October by a payments company Mastercard, which is building a blockchain that scales "by reaching consensus between a trusted network moderator and network participants."

However, the Mastercard example is indicative of the dangers of many proposed scaling solutions, seeing as how it requires a "trusted" network moderator to work. This entails that the blockchain becomes (at least partially) centralised, something which not only violates the anarchic/libertarian spirit of blockchain but also opens it up to abuses and corruption (e.g. in the event of a dishonest moderator).

And even with scaling solutions such as sharding there are security risks. As outlined in Ethereum's own FAQ on sharding, the much smaller sizes of shards mean that there's an increased risk of a bribing attack, where a malicious participant pays other nodes to create an alternative chain (thereby allowing her/him to double spend).

These are serious obstacles on the route to a genuinely scaleable and genuinely decentralized blockchain, and while recent endeavours from the world's crypto communities would imply that there's enough belief they can be cleared, certain figures strongly doubt whether the Ethereum and Bitcoin blockchains can ever be used at scale.

"Platforms that are being developed for business usage that simply modify public traditional blockchains like Ethereum and Bitcoin will always face scalability issues, because the underlying architecture simply isn’t fit for purpose," argues R3's Roger Willis. "While perhaps superficially appealing, the design of these platforms is fundamentally at odds with the needs of the firms whose needs they purport to solve."

Only time will tell whether or not such an analysis is true, but for now, there's little doubt that the world's blockchain companies and communities are beavering away to make sure it turns out to be false.